budget crisis

As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here.

As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2010, they can be accessed through the RSS Archive Feed.

Let me start by saying that, given a certain size of central government, libertarians could do worse than spending almost two-thirds of the budget on a few wealth transfer programs (Social Security and Medicare, both mostly funded by flat taxes, plus Medicaid, which gets much of its funding from the states) and a military like ours. Imagine if that money was spent employing domestic police and busybodies.

But even that government is fiscally unsustainable, so we expect our government to eventually be forced to give up some of its “responsibilities.” Assuming the country avoids a sovereign debt crisis, that adjustment might not be so bad for libertarians. Continue reading →

As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2010, they can be accessed through the RSS Archive Feed.

Representative Paul Ryan characterized the Obama budget as not a fiscal plan but “a political plan designed to help the President’s reelection.” Getting into the details seems to validate Ryan’s point.

He also pointed out that the debt crisis is the most predictable crisis imaginable and the president has "punted" again with this budget. Said Ryan, “Instead of an America built to last we get an America drowning in debt.”

The White House claims the Obama budget saves 4 trillion over and above the Budget Control Act. But in fact, the Obama budget rides the base line and throws more taxing and spending on top of it (while claiming to save 4 trillion). Analysis of the budget shows, at best, a savings of 300 billion over 10 years.

6. The double-tax on corporate profits (including dividends) would increase to 64 percent based on the statutory corporate tax rate (58 percent using the effective tax rate), easily the highest among advanced economies.

7. The double tax on corporate profits (including capital gains) would increase to 51 percent (44 percent using the effective tax rate), also among the highest among advanced economies.

Those details alone are a basis for declaring his budget “dead on arrival” at Congress. These new taxes would take the tax revenue as a share of GDP to 20.1 percent in 2022. The historical average is 18 percent. In a time of deep recession, when government should be proposing economic, tax, labor and trade policies to create jobs and move the economy in a positive direction, Obama’s budget proposes to do exactly the opposite. The attack on small business, as well as corporations, points to a president out of touch with the problems of the economy. He claims to save 4 trillion on debt with these policies but in fact, his budget proposals add 6.7 trillion to the debt over the next 10 years and the debt-to-GDP ratio is predicted to be 74.2 percent this year and 76.5 percent in 2022.

Corporate taxes are paid by consumers in higher prices and by workers in lower wages – so much for the promise not to increase taxes on those making less than $250,000. Every good tax economist knows this, but the president chooses to ignore reality and demagogue the issue.

Indeed.

Given that, how does the White House justify such policies? Well, it simply makes up a rosy forecast for the future, that’s how. 3.4 percent in 2015, 4.1 percent in 2017 and 3.9 percent in 2018. As James Pethokoukis points out:

The U.S. economy has only seen a run like that three times in the past four decades.

Yet we’re supposed to believe that we’ll come roaring out of one of the longest and deepest recessions since the Great Depression with taxes focused mostly on business at a higher than historical rate? Not likely.

Meanwhile we’re being told by the President’s Chief of Staff that it is all the Republican’s fault that we don’t have a budget out of the Senate. Mistakenly claiming that it takes 60 votes to pass a budget, he points to the Republican Senators as the obstructionists.

Of course, on budget matters, it only takes a simple majority. And there are 53 Democratic Senators. If you recall, the Senate minority leader, Republican Mitch McConnell introduced and got votes on two budgets last year – the Ryan budget, voted down by Democrats and President Obama’s budget which was voted down 97-0. Harry Reid, however, has introduced no budget in over 1,000 days.

At issue is how the government projects spending and deficits going forward. Of the $4 trillion in deficit reduction claimed by the White House, $3 trillion would come from a combination of tax increases and spending cuts. Another $900 billion would come from domestic spending caps agreed to with Republicans last year to resolve the impasse over raising the nation’s statutory borrowing limit.

But if Congress and the president did nothing, spending would actually fall by $2 trillion under current law. That is because automatic cuts to defense and nondefense programs totaling $1.2 trillion are already set to go in force in 2013. The Obama budget assumes those cuts will not happen. The president also assumes that sharp cuts to reimbursement rates for doctors treating Medicare patients will never be enforced, but the budget does not detail how those scheduled cuts will be prevented.

Republicans say that effectively negates $522 billion over 10 years, since Congress will have to figure out how to pay for the so-called Medicare doc fix.

Republicans also protest that Mr. Obama is "saving" nearly $1 trillion by not spending over the coming decade what the United States has spent each year on wars in Iraq and Afghanistan.

So the Obama savings are built on assuming the “Doc Fix” won’t be made and that war spending will remain at the current level (even with the withdrawal from Iraq and the coming withdrawal from Afghanistan) for 10 years – something obviously not the case. He’s built his 4 trillion in “savings” on 1 trillion in tax increases, 2 trillion on spending cuts already enacted into law (sequestration), 1 trillion assuming war spending will remain level for 10 years. Meanwhile most of his spending cuts come from where? The military, of course.

“This is big,” wrote White House director of new media Macon Phillips in a February 23, 2009 blog post, ”the President today promised that by the end of his first term, he will cut in half the massive federal deficit we’ve inherited. And we’ll do it in a new way: honestly and candidly.”

Indeed, President Obama did make that promise that day, saying, “today I’m pledging to cut the deficit we inherited in half by the end of my first term in office. This will not be easy. It will require us to make difficult decisions and face challenges we’ve long neglected. But I refuse to leave our children with a debt that they cannot repay — and that means taking responsibility right now, in this administration, for getting our spending under control.”

This budget does none of the above. In fact, it’s not even close. There are no “difficult decisions” included. There are now “challenges” faced. As Rep. Ryan said, Obama has again “punted”.

This is indeed the most predictable crisis imaginable and again, the man who claimed he would do what is necessary to fix the problem has once again kicked the can down the road.

The US Postal service has a financial problem. That’s not a surprise, especially is a time when the entire US government has a financial problem. Unlike the rest of the US government, the USPS is relatively limited in the amount of government money it can receive, and is more or less—and often less, granted—supposed to rely on postage to fund its operations. It still manages to get nice subsidies from the government, but even then it’s supposed to pay those back. Eventually.

In other respects, though, it operates like the rest of the government. Nice federal workers’ and union bennies, heavy bureaucracy, a monopoly on the service it provides, etc., etc. So, that makes it sort of a canary in the coal mine when it comes to government financing. Which makes this interesting:

The U.S. Postal Service would eliminate about 220,000 full-time jobs and shutter about 300 processing facilities by 2015 under a proposal to bring its finances in order, a postal official said on Friday.

The Postal Service needs to cut payrolls to about 425,000 employees and take over its retirement and health benefits instead of participating in federal programs, Postmaster General Patrick Donahoe told Reuters.

This will require abrogating union contracts on layoffs on retirements and health care, and restructuring its employment and benefit rules, close about 3,000 post offices, and contract out mail services to private organizations.

Naturally the unions are already screaming, as are some Democratic lawmakers.

*shrug*

Cry me a river. This is what financial reality looks like. This is the reality that’s coming to the rest of the Federal government in the not-too-distant future. Get used to it.

We have a special election here in California on Tuesday the 19th. We all have to go to our polling places, and decide whether Propositions 1A-1F–which were put on the ballot by the legislature–will be accepted. Of those propositions, 1F, which denies pay increases for elected officials if the state’s budget is all higgeldy-piggeldy–is the only one worth passing.

The rest of them amount to nothing more than allowing the legislature to loot the revenues from things like the lottery or child health programs, that the current law prevents them from touching. But the legislature wants to loot those programs, so that it can use the money in the general fund, instead. And, the general fund certainly needs something. At this rate, there is an excellent chance that California will be out of money by July. That means no money for teachers. No money for the DMV. Or the CHP, or CDF. The state will be, well, broke.

So, who do we blame for this, California?

Some people, Like Tom McClintock, the former Republican state senator and now Congressman, blame Arnold Schwarzenegger. Indeed, McClintock says that Schwarzenegger lied to the people of California when he ran against Gray Davis in the now-famous recall election. “He promised to stop the crazy deficit spending, cut up the credit cards, live within our means. And he did exactly the opposite. Schwarzenegger increased spending faster than we saw under Gray Davis.” McClintock, of course, was one of the people who ran against Schwarzenegger during that election.

(By the way, a side note to Rep. McClintock: Barring an act of divine providence, the sun will set in a blazing red sky to the east of Casablanca before you ever become governor. You may be a great guy, for all I know, and truly committed to reducing the size and scope of government. You may be popular in little the red-state enclave that makes up your Congressional district. But the electorate at large is not going to send someone with your crazy, helter-skelter eyes to the governor’s mansion.)

But should we blame Arnold for this mess? After all, he promised to reform the budget process, and ensure that California would never, ever be in the position that Gray Davis left us in, with a massive budget shortfall. And yet, he did. In fact, the animating issue of that recall election was Davis’ proposed increase to the car registration fee, which would make the annual regiatration fee average something like $600. Now, Schwarzenegger is supporting pretty much the same thing. So, it’s certain that the Governator has been a failure.

But, you know what? I don’t blame him, California. I blame you. Not every individual one of you, of course. By “you”, I mean the electorate as a whole. We aren’t in this position because Arnold changed his mind about reforming the budget process. He did, in fact, put sweeping changes to the process before you for approval in a series of ballot propositions in a special election.

And you told him to go f*ck himself.

Not only did you kill his reform plans by sizeable majorities, you then proceed to approve nearly every state bond issue that reared its ugly head. More money for schools? No problem. More money for the CDF? Let’s borrow it. More money for a shelter for developmentally challenged kittens? Might as well slap that on the card, too.

You listened when the Service Employees Union, the California Teachers Association, and the AFSCME union for government workers told you that if we attempted to reform the budget, disaster would ensue. We’d have to slash thousands of jobs for teachers, firemen and cops. Those of us who weren’t lucky enough to be murdered in our beds or die shrieking in horrific pain as our bodies were engulfed by flame would be able to look forward only to a life shameful unemployment due to our abject ignorance, cowering under the heel of our new Chinese overlords. You believed them they told you, “education spending is being cut, and our children are suffering,” despite the fact that, while the school age population has been declining, education spending since 2003 has risen from $45 billion to $54 billion. That’s a 20% increase, at a time when school enrollment was falling.

So, when the special interests or politicians asked to spend or borrow more money via ballot propositions, you told them to go right ahead. “Spend away, Sunshine! Let the good times roll!” And that’s exactly what we did. It seems never to have occured to you that the only way the government can spend money is to take it from the economy–that is to say, you.

So, now, the state’s got nothing left to spend. But, by your votes to increase spending, and to reject any reform of the budget process, that’s apparently what you wanted to happen.And since the state has no other way to get money, Sacramento is reaching onto your pocket yet again. So, when you get that $600 bill for vehicle registration renewal, see the prices of goods get higher as the sales tax goes up, and watch your state income tax bill rise, you need to just smile, suck it up, and be a man. After all, that’s exactly what you asked for.